Royal Caribbean Says Americans Are Cruising Closer to U.S. Waters

North Americans are really interested in taking a cruise this year — from North America.

Royal Caribbean Cruises reported better-than-expected earnings for the first quarter Friday, boosted in part by strong demand from North American passengers for cruises to Alaska, Bermuda, and the Caribbean.

What didn’t fare as well with that group, the largest source market for cruising? Mediterranean itineraries, where demand from this side of the Atlantic dropped off following the Brussels bombings in March.

“Certainly some of the softness we see in Europe — the Caribbean is the beneficiary of that,” said Michael Bayley, president and CEO of Royal Caribbean International. “A lot of people who were planning to go to Europe are going to the Caribbean and Alaska.”

Bookings in Europe have gotten back to normal levels, but the Miami-based cruise company was forced to lower prices and turn to more European travelers than usual to fill those Mediterranean sailings. That has resulted in lower fares and lower expectations for onboard spending, since North Americans tend to pay more for their tickets and experiences during a trip, said chief financial officer Jason Liberty.

But he said destinations including Alaska and Bermuda are commanding higher prices than a year ago, and interest in winter Caribbean sailings on the upcoming Harmony of the Seas — which will be the world’s largest cruise ship when it debuts next month — is strong. The company said that demand was “more than offsetting” the slumping interest in the Mediterranean from North Americans.

Richard Fain, chairman and CEO of Royal Caribbean Cruises, said strong last-minute demand helped bookings even while the company stayed away from last-minute discounting within 30 days before a sailing. That “price integrity” policy has been a priority for Royal Caribbean over the past year as cruise lines have tried to move away from the practice of slashing prices to fill cabins shortly before departure.

Royal Caribbean Cruises owns brands including Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, and a few European brands. For the quarter that ended March 30, revenues increased from $1.8 billion last year to $1.9 billion in 2016.  Net income was up from $45 million during the first quarter of 2015 to $99 million this year. Yields, or revenues per passenger per day, increased 7 percent when the impact of currency exchange rate changes were removed. That jump was driven both by higher ticket prices and higher spending onboard, especially on internet service and drinks.

“We always have pluses and minuses affecting different seasons and different itineraries,” Fain said. “In today’s case, we’re in the happy position that just about everything in the quarter that could have gone right did. Ticket revenue was stellar, onboard revenue was terrific, costs were well controlled.”

In China, where Royal Caribbean will have five ships when the brand new Ovation of the Seas arrives in June, yields fell below 2015 levels, as expected, while remaining higher than the fleet average. Capacity has shot up in Shanghai over the past year as cruise operators seek to capture even a sliver of the Chinese outbound tourism market.

Fain said capacity for the Royal Caribbean International brand in China has more than quadrupled, which he acknowledged was “an extraordinary amount for any market to absorb.”

“I believe our unique strategy in China is working very well,” he said. “First, we have brought to the market the best ships, the biggest, the baddest, and the newest. The Chinese appreciate that we have acted so positively toward their country. It has enabled us to establish an unusually strong first-mover advantage.”

In another up-and-coming market, Cuba, rival Carnival Corp. will have the advantage of the first move. The cruise giant received approval to send its Fathom brand to the island starting Sunday, becoming the first cruise company to sail from the U.S. to Cuba in more than 50 years.

Fain told CNBC in an interview Friday that the company had submitted an application to the Cuban government and that he expects approval to be “forthcoming relatively soon.”

During the call, Royal Caribbean Cruises president and chief operating officer Adam Goldstein said the company has a “keen desire” to take passengers to Cuba, but pointed out that the island still has very limited infrastructure.

“We hope to be there in the short term, but it would be on a fairly limited presence,” he said.